Refers to two issues, whether:
- a claim can be subject to arbitration, or is precluded from arbitration under national or local law, sometimes referred to using the German expression kompetenz-kompetenz (competence-competence) which orginainated in the German Supreme Court; or
- the contractual question subject matter of a claim falls within the arbitration agreement or clause.
These are not wholly distinct issues. With respect to 1, various claims are, as a matter of the law of the relevant jurisdiction(s), not subject to arbitration – usually on public policy grounds. This is very much a question of local law and what is considered a ‘public policy.’ This is covered under Article V(2)(b) of the New York Convention which provides that the award of an arbitral tribunal may be refused or set aside if “contrary to public policy,” in particular stating that:
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
However, the range of what national courts have held to fall within this provision is hard to define, ranging from general unconscionability, i.e., morality and justice such that enforcement would “be such that it would shock the conscience of the Court” to the issue that the arbitration tribunal has tread, or ruled on matters reserved for state agencies such as criminal matters or aspects of employment law, racial or sexual discrimination, civil rights, the validity of state granted property rights or antitrust/competition law.
The second issue can be related to the first, or independent of it. Since arbitration is a consensual process, i.e., all parties to an arbitration have to agree to arbitrate the dispute, usually through a preexisting arbitration clause, the question can arise whether the subject matter of the dispute falls within the arbitration clause, or whether all parties to the dispute have agreed to arbitrating it. If the agreement does not extend to the subject matter or to a necessary party, the matter may not be arbitrable in that it may not lead to an enforceable result and the arbitration tribunal or a court may terminate or enjoin the arbitration.